The mercantilism trade theory was espoused by the most powerful European countries from the early 1500s to about 1800. This policy sped up the economic move away from the feudal economy and the guild crafts production system. It helped push Europe from a land-based economy to a monetary economy. Its main goal was to promote foreign trade and export for industries, including textiles.

Definition

Mercantilism, according to Laura LaHay, in the Library of Economics and Liberty, “is economic nationalism for the purpose of building a wealthy and powerful state.” Economist Adam Smith coined the term mercantile system. The system was most popular between the 16th and 18th centuries in Europe. Countries tried to maintain a balance of imports to bring money into the country and exports to keep up domestic employment. The theory states than an economy needs to export more than it imports to remain economically and politically viable.

History

In the 16th century feudal era, the main rationale for mercantilism was the consolidation of regional power. Colonization outside Europe had a great effect on trade and mercantilism as the host country always traded with its occupied colonies. Earlier economic policies left most states too weak to help guide their economies and each small town had its own taxes or tariffs on trade passing through. The mercantile era saw the rise of powerful states, including Spain, England, France and Holland, engaging in almost constant warfare. The increase in warfare led to an increased need for gold and other metals and therefore an increase in trade.

Policies

The mercantilist policies rose from the special relationship between a country's government and its mercantile classes of small and large business owners. The traders paid levies and taxes to help support the army and navy and in exchange, the government enacted policies that would protect domestic businesses against outside competition. “The government assisted local industry by imposing tariffs, quotas and prohibitions on imports of goods that competed with local manufacturers,” reports LaHay.

Rationale

Aside from the monetary requirements of war, colonization and conquest, the mercantile system grew out of the 18th century beliefs about the origin of profit and the nature of trade. Merchants believed that purchasing your goods for low prices and selling them at much higher prices made profit. Although this is the common goal of all for-profit companies, mercantilism applied the concept to the nation as a whole. This led nations to practice exporting more than they imported.

Proponents of Mercantilism

The Reference for Business reports “mercantilist authors were typically business and professional people who haphazardly wrote and made known their thoughts--long before economics came to be an academic discipline.” Merchants were not philosophers and had no pretensions to scientific knowledge. Instead, they were “proselytizing and pamphleteering men of affairs,” says Reference for Business. Most of the economics authors came from France and England in the seventeenth century. They were practical people who wanted to spread their economic ideas and thereby increase their own businesses' profits.

Effects

As the British colonized the Americas, mercantilist policies dominated political and business decisions. The British colonized Virginia 1607 specifically for the purpose of making money on tobacco crops, says Gary M. Pecquet--in his January 2003 "Cato Journal" article, "British Mercantilism and Crop Controls In the Tobacco Colonies", reprinted by All Business. The crop became the monetary exchange for the region so that small businesses, such as "artisans, innkeepers and other non-farmers, often planted tobacco patches to raise extra cash," reports Pecquet. Afer the mercantilist policies of limiting access to imports and controlling exports, a 1621 bill introduced in Parliament prohibited planting tobacco in England and importing tobacco from anywhere other than the British Indies and the Virginia Colony.

About the Author

Dana Griffin has written for a number of guides, trade and travel periodicals since 1999. She has also been published in "The Branson Insider" newspaper. Griffin is a CPR/first-aid instructor trainer for the American Red Cross, owns a business and continues to write for publications. She received a Bachelor of Arts in English composition from Vanguard University.